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Citi Modestly Hikes Gold Forecasts, Sees $1,340 In 3Q, $1,320 In 4Q

By Kitco NewsTuesday August 23, 2016 11:04

(Kitco News) - Citi Research modestly increased its forecast for gold prices in the second half, commenting Tuesday that the metal is likely to remain underpinned by political uncertainty and demand from exchange-traded funds even if the Federal Reserve hikes interest rates before year-end.

“We have been bullish bullion prices in our past few notes and make only modest upgrades versus the forwards this month,” Citi said in a research note.

Previously, Citi looked for Comex gold prices to average $1,325 and $1,280 an ounce in the third and fourth quarters, respectively. The bank upgraded these to $1,340 and $1,320.

“Though we still expect the Fed to hike in December, per the U.S. economics team base-case view, elevated levels of political/election uncertainty in the U.S. and the stickiness of ETF and hedge fund flows into gold products leads us to boost the 2H’16 outlook,” Citi said. “We see strong support for gold prices above $1,300/oz for the balance of this year.”

So far in 2016, gold has reversed a downward spiral from the prior four years. As 2015 wound down, the Federal Reserve upped U.S. interest rates for the first time in more than a decade and expectations were for still more increases, causing gold to fall below $1,100 an ounce. Since the start of the year, however, Comex December gold skyrocketed to $1,346.30 as of 10:47 a.m. EDT, a gain for the year to date of 26%.

Citi does look for the Fed to start hiking next year, however, and for gold to fall back as a result. Analysts upped their 2017 price forecast by 2.5%, although their $1,280 outlook is below current prices. Analysts said they anticipate “a gradual tapering of gold buying as Fed hiking resumes.”

Still, the bank concluded: “Though the U.S. dollar remains strong and U.S. short-term rates are slated to rise this winter, with the other G4 central banks continuing to keep monetary policy loose and core bond yields very low or negative, we think the relative positive carry of gold (currency hedged in yen/euro/GBP terms) will keep the trade active in 2017, despite the possibility of Fed/USD headwinds.”

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